What the Masters golf tournament can teach us about investing

Global investment diversification has likely paid off for U.S. investors this year. Overseas markets saw strong performance in the first quarter, resulting in solid returns for many U.S. investors even after factoring in the dollar's strength.

Markets have become increasingly globally diversified, requiring investors to adopt a global perspective. We've seen this trend in stocks mirrored nearly everywhere—even the Masters golf tournament. The geographic distribution of the home countries of the golfers at this week's Masters Tournament is almost exactly the same as the stocks in the MSCI All Country World Index.

On courses and bourses: world-class performers

Charles Schwab

The increasing globalization of the Masters can best be seen in the shifting nationality of winners. For the first 45 years, the Masters champions were from only two countries—the United States and South Africa. In contrast, winners in the past 35 years have reflected the same global geographic diversification we see among the players in this year's Masters: 51% from the United States, 3% from Canada, 14% from the United Kingdom, 17% from Europe (excluding the U.K.), 3% from Asia-Pacific, and 12% from emerging-market countries.

Global diversification has likely been a boon to investors this year partly due to swings in overseas economies, which posted better-than-expected economic data. It was a stark reversal of last year's trend in economic and market performance, when the U.S. economy was surprisingly strong while growth in other regions was disappointing.

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The Citigroup Economic Surprise Index rises when data is better than economists' estimates and falls when the data misses expectations. The surprise indexes for each of the world's major regions usually move in sync, as they did in 2012 and 2013. But in 2014, the United States bucked the trend of disappointing data seen in Europe, Asia and emerging-market countries. And the opposite phenomenon has occurred in 2015, with a surge in positive surprises for non-U.S. economies accompanied by a slide for the United States.

Why surprises got out of sync

Charles Schwab

There always seems to be a region that is economically on the rise. The "BRIC" gains (Brazil, Russia, India, and China) of the 2000s are an example. However, a longer-term view shows us that while some regions have grown and some have contracted in their share of global GDP, overall economic growth is becoming more geographically diverse as historically less-dominant economies have gained a larger share of the global economy.

As you can see in the chart below, the BRIC nations, led by China and India, dominated the world economy 200 years ago as they made up about 50% of world economic output. At that time, the United States was a small emerging market. Over the intervening years, however, the U.S. economy grew and the BRIC nations shrank in their contribution to global GDP.

200 years of increasing economic diversification

Charles Schwab

Everywhere we look around the globe, we can find world-class performers in areas ranging from sports to stocks and beyond. With the diversification and, more recently, increasing economic divergence and market volatility, the value of allocating to international developed and emerging markets becomes increasingly obvious for those who wish to become "Masters" at investing.

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I hope this enhanced your understanding of the benefits of global investment diversification. I welcome your feedback—clicking on the thumbs up or thumbs down icons at the bottom of the page will allow you to contribute your thoughts. (If you are logged into Schwab.com, you can include comments in the Editor's Feedback box.)